Rajapaksa bond scams were like pyramid scams: PM

If the Central Bank bond issue and the disclosures of names at the Presidential Commission of Inquiry, had seriously damaged the image of the United National Party, Prime Minister Ranil Wickremesinghe’s widely publicized statement in parliament on Thursday went a long way towards clarifying the situation.   

The Prime Minister said treasury bond issuances from 2008 to 2014 would be investigated at the conclusion of the on-going probe by the presidential commission. He said the method followed in the treasury bond issuances till 2015 was like a pyramid scam. 

The pyramid scheme - a fraudulent scheme in which people are recruited to make payments to the person who recruited them while expecting to receive payments from the persons they recruit. When the number of new recruits fails to sustain the hierarchical payment structure the scheme collapses with most of the participants losing the money they put in.   

According to the web site Pyramid Scheme Alert, in recent decades, pyramid schemes have become an insidious, pervasive and corrupting influence in the marketplace and community, causing financial and social harm on a global scale.   

The Internet has become a new vehicle which has facilitated the rapid spread of pyramid schemes. The stock market boom of the 1990s and the emergence of a still undefined “new economy” have given further rise to pyramid schemes masquerading as speculative stock or equity investment programmes.   

Tabling a report obtained from the Central Bank on Treasury Bonds issuances from 2008-2014, the Prime Minister said the overwhelming majority of Bonds had been issued on direct private placements and that the process seriously lacked transparency. Mr. Wickremesinghe said that from 2008 to 2014, Rs.5,147 billion worth of Bonds had been issued and out of that, Rs. 4,702 billion had been direct private placements.  He pointed out that the total value of Bonds issued from the public auction method introduced by the new government stood at only Rs. 435.5 billion. The Prime Minister said that from 2008 to 2014 Bonds had been issued to a few selected primary dealers at arbitrarily decided interest rates without the approval of the Central Bank’s monetary board. The direct private placement method had been heavily misused. That is why the new government in 2015 decided to shift to public auctioning, with the intention of replacing the corrupt system with a transparent and effective process. He said the government had obtained expert advice from the United States to streamline the auctioning system.   

The Prime Minister charged that the former Rajapaksa regime had no Monetary Board approval to raise money through direct private placements, as it flagrantly did. He said that when the new government inquired in March 2015, it was stated that the Monetary Board decision was to raise money through captive sources to meet the short term financial requirements of the Government. For example, the Monetary Board had recommended issuing Bonds from sources such as the Employees’ Provident Fund (EPF), the Empolyees’ Trust Fund (ETF) and the National Savings Bank.   

The Prime Minister, pledging to investigate the massive scam behind the bonds issuances from 2008-2014, said it could be termed the largest pyramid scam. He said the large scale scams in the Stock Market during the same period would also be investigated. He requested the Public Finance Committee to probe the loans obtained and bonds issued without the knowledge of Parliament.   

The Premier said the government since 2015, had only raised Rs.157.5 billion through direct private placements at four occasions. He said he had obtained a report from the Central Bank on the total amount of money the Government has to pay from 2017- 2045 for treasury bonds and their interest.

The bank said the government would have to pay Rs. 4,154 billion for Treasury Bonds till 2045 and Rs. 3,086 billion as interest. The government would have to raise more money through bonds in the future. Therefore the figures would further rise. Whatever the amount the Prime Minister said the government would carry forward the Vision 2025 economic development strategy to build a peaceful, just and all inclusive society.